Archive for Tuesday, November 26, 2002

In face of cuts, more states seek federal assistance

Governors’ report outlines new budget shortfalls

November 26, 2002


— Demands from governors and state lawmakers for a federal financial bailout are growing, as states from California to Florida face potentially sweeping cuts in popular programs amid deepening budget woes.

Every state but Vermont is required by law to balance its budget, and virtually all of them are now struggling with deficits. "This is the worst budget crisis states have faced since World War II," said Raymond Scheppach, executive director of the National Governors Assn., which released a state fiscal survey Monday.

But the states confront a difficult climate in Washington, as the federal government struggles with its own budget deficits - and both President Bush and the incoming Republican Congress focus on other priorities.

Over the last several weeks, state officials have pressed Washington for more money to fund homeland security improvements, election reform, education, highway construction and, above all, the joint state-federal Medicaid health care program for the poor. That program may suffer widespread cuts this year, even as the number of Americans without health insurance is rising.

While states appear likely to receive aid on some fronts, most analysts say they are unlikely to obtain nearly as much help as they are requesting. And that could mean deeper cutbacks, especially in Medicaid, in states that have been counting on a federal lifeline.

"The general picture is don't count on anything from the feds, because the federal government now has a deficit and it also has other priorities," said Kenneth Finegold, a senior research associate at the Urban Institute. "National security and tax cuts are priorities of this administration, and balancing state budgets are not."

Administration officials say that while they are increasing spending in some areas important to states - such as special education - it is unrealistic to expect a broad aid package when Washington is in the red, too. And they say states may be helped more - especially in coping with exploding health care costs - by reductions in federal regulations than increases in federal dollars.

In all, the states faced a cumulative budget shortfall of nearly $50 billion when initially designing their budgets for this year, according to the National Conference of State Legislatures. Last week, the conference reported that the deficit was on track to swell by an additional $18 billion by next June, when most states close their books. Tax receipts are running below projections in two-thirds of the states, the legislatures group found.

In Kansas, Gov. Bill Graves today is expected to announce a new round of budget cuts totaling at least $110 million to deal with budget shortfalls.

These vast deficits mark a screeching end to the boom times of the late 1990s, when state revenues soared and governors of both parties buoyed their popularity by cutting taxes and increasing spending on programs such as education and children's health.

States now have been forced to cut spending and, in a few instances, raise taxes. In each case, tougher decisions are looming.

In its report Monday, the governors association said 37 states cut $12.6 billion in spending in their 2002 budgets. But, the report noted, states have relied heavily on short-term solutions, such as drawing down on so-called rainy day funds that swelled during the fat years of the late 1990s.

Also, many states have been able to get by with cuts that the public is least likely to feel, such as reducing their work force or limiting travel.

States have moved even more gingerly in considering taxes. According to the study, states raised taxes by just more than $8 billion in this year's budgets.

By contrast, the widespread cuts in state taxes approved while the economy was booming from 1994 through 2001 are now reducing state revenue by more than $40 billion annually, according to an analysis by the Center on Budget and Policy Priorities think tank.

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